Things Justin Says on Podcasts

No, so this is fantastic for American oil producers. So let me go back because it'll help answer a question that I think puzzles lots of people. I said earlier the U.S. is actually a net exporter of energy. For our purposes, let's just say it's roughly energy neutral. We produce about as much energy as we need. If that's the case, why do we care about what's going on in the rest of the world? Why do our lives feel so disrupted given that we're in a continent surrounded by water, Canadians, and Mexicans? And we produce as much as we consume. And the answer is as follows: which is American producers always have the right to sell their oil elsewhere. By the way, I think that's a good thing. If you can sell your oil at $100 a barrel to folks abroad and there's someone domestically who wants to buy it for $70 a barrel, the person domestically doesn't need it that much. Otherwise, they'd say they're willing to pay $100. And so it's better to get $100 of revenue than $70 of revenue. So what's going on right now is, therefore, the world price of oil rises. But it's still the case that basically the US is making as much as we need. But now American fuel oil producers have the option of selling it abroad. So they'll never sell it for less than the global price. This is where the disruption feels big. Therefore, the price you pay at the pump, look, you didn't need an economics professor to tell you this. The price you pay at the pump has gone up. You might say, well, wait a minute. You told me we come out equal. Now you're saying the price went up. No, what's happening is drivers are paying more for gas. But the thing is, when a price goes up, someone pays it, someone else receives it. If you're on the receiving end of an expensive gas bill, you suddenly feel really good about the world. And so basically, buyers of gas feel terrible. We call those people. I know in New York you don't because you all take public transit. People

Right. So in a world in which you and I or the US and Iran can see each other's bargaining power, which in this case would be their military power, their strategic assets, and their willingness to persist even when it seems pointless. In a world in which we can see that perfectly for each side, I can forecast where this is going to end up and they can forecast. Now, forecasts should be identical. So therefore, when I turn up to the peace talks and say, hey, let's just go directly to that outcome, they're like, you know what, that's better for us too. And it's all very simple. In a world in which I can't see what's going on with the other side, I might not realize how strong they are. And so I might turn up and say, I'm going to lieball them. And they're going to be like, no, that's terrible. And so there's a different theory of war, which is what's going on is basically what Iran's doing right now or what the US is doing. The very fact that we're willing to put up with pain, economic pain, personal pain, watching our citizens get killed, is signaling to the other side how strong we are. So they can't see how strong we are. The only way we can show them is by letting young men and women die. So that would be, that's the part of semester when we talk about information asymmetry. What if both sides don't know the same thing? And that's important. And in some sense, that's an economic theory that can help us understand how war might be not the dumbest thing in the world, right? It might be necessary. It's the only way to show your strength. But I still want to come back and remind you that war is the dumbest thing in the world. It's both sides wasting resources, which is such a clinical and terrible word for terrifying a generation in order to get to an outcome. If you can jump to the outcome, jump. Okay, I think we were talking about oil prices. Okay, you said, what are the solutions? Okay, one, don't go to war when you don't need to. Two, when you're at war, the efficient outcome is to stop fighting and get to the final solution. I would love it if they do that. I would love it. I don't think the problem right now is that the Iranians misunderstand American power or the Americans misunderstand Iranian power. We understand that the Iranians do have some leverage. They hold the straight of a mush. Maybe the president's not willing to admit that. Maybe politics gets in the way. But America, Americans, people watching this video, understand that Iran has shown enough that it does have some leverage and some concession will eventually be made. It might take us 10 years to work that out, but let's not waste the 10 years. Let me wind back. Let's come back. Your question was actually about oil. You said, what could we do? So pretending to release oil, I know this is surprising, doesn't do anything. Actually releasing oil would. So the agreement back in March of 2026 was, actually, let's go all the way back to the 1970s. The OPEC oil shocks, all of a sudden the Middle East decided that they weren't going to send any oil out. And the rest of the world saw fuel prices skyrocket and it caused a global recession and in fact stagflation. That led to an understanding that vulnerability to oil was an economic vulnerability. And so that led to what we should do is we should get ahead of this with storage tanks and store ahead so that they can't stop our economy tomorrow. The economic problem is if oil is sold in a global market, then every country wants other countries to store oil for the future. And so then what they did is they formed the International Energy Agency, which is basically all the rich countries got together and they said, hey, how about we all store some oil? And if things go wrong, then we can release some of that oil while the Strait of Him was closed. Notice it's only a way of dealing with a temporary disruption. So, if this is a temporary disruption, and in March we certainly believed it was, then releasing oil that we built up for a rainy day, the rain came, released the oil. And then we remove some of the crazy ups and downs of oil prices and therefore remove some of the crazy ups and downs of the business cycle. So, what they did in March, I think, is sensible, actually, relatively small. That's a point that we did hit on. Coming back, though, to October and announcing we are going to release 100 million barrels of oil that we were already going to release does nothing but take up more oxygen.

Yeah. So first, let's go to the really big lesson, which is actually nothing's accurate. Nothing in the world is accurate. I might think that I'm 5, 11 and a half, but it's probably the case that I'm 511.487321 inches. Measuring anything always comes with error. General proposition. Anything we measure about the economy comes with error. We can either get things perfect by lining up 340 million Americans and talking to each and every one of them, or we can talk to a sub-sample, in which case we're doing extrapolation. And the question is, did we talk to the right set of them to be fully representative? So everything comes with error. And in fact, you might learn that in like a high school science class, but it's doubly, triply, quadruply true with economics. Measuring someone's height, just not that hard compared to thinking about an economy of the size, scale, and complexity of the United States with employers maybe who are hiding in the shadows to avoid taxes or workers who are hiding to avoid taxes or immigration authorities and so on. It's an immensely difficult task. Okay. Having said that, the answer to your question is pretty simple. The way we collect the jobs numbers, the main survey, it's called the Establishment Survey, which is essentially the government reaches out to a pretty big sample of businesses and it says how many people were on your payroll in a specific week. And they make sure actually they talk to a big chunk of the really big businesses, which actually means this represents a whole lot of the U.S. workforce. You can think of it as if they send them a letter and they wait for a letter to come back. Of course, this is the 21st century. So in the 80s, they sent them a fax and a fax came back. And today we can wire up the systems to talk to each other a little bit better. But sometimes what happens is the government calls and asks for a number and you think to yourself, I'm busy. That's a pretty reasonable thing to be. And so you say, I'll get to that next week. And if you're at all like me, you actually get to it six weeks later. So what that means is the set of businesses that respond with a true count is just whoever happens to respond. And they do adjust for the fact that some people don't respond. But the guess, they have to guess what the folks who don't respond would have responded if they had responded. And then guess what? A new letter arrives saying, this is how many people were on my firm's payrolls. And so that's what a revision is. We move from having an incomplete sample to a somewhat more complete sample. And then a month later, an even more complete sample. So first thing, there are people who try to undermine the public's faith in government statistics. They do that, I think, because they want to undermine yours and my faith in the idea that there is a truth. I'm deeply dismayed by that. But actually, a statistical agency that revises its data is much better than one that doesn't. Just like a person who admits their mistakes is much better than one who doesn't. You might be tempted to say, well, the first print was high and the second print was low. So maybe the truth is in between. That's not right. The first print was based on a small sample. The second print includes all those people and also includes others. So therefore, there's no extra information in the initial number than in the revised number. The revised number is always and everywhere a better guide to what's going on. So far from being. A weakness of our statistical authorities. It's a strength that they revise. And one of the things we learned this month was that the folks who sent back their forms early last month were the folks who'd done a lot of hiring. When a bunch more forms came in, we found there was a bunch of folks who hadn't done much hiring. And so, in fact, last month and the month before were much weaker than we had thought at the time. We react a lot to these revisions, partly because this is one of the most accurate surveys of what's going on in the economy. And so one way to think about this is you can think about, and this is what I do at least, when the jobs numbers come out, you can think about there being three independent sources of information. There's the household survey, which we haven't talked about. There's this month's payroll survey. Then there's new responses to previous month's surveys, three. And so those are independent at some fundamental level. And this month, the household survey was okay. This month's survey was kind of weak. The revisions were kind of weak. That's why you're seeing me in a, when I've had some time to come to terms with this emotionally, but that's why I'm neither ecstatic nor miserable right now.

And so that, I think, tells us that this AI debate is the debate of our time. I have never in my career gotten to say one economic parameter can make the difference between utopia and dystopia.

need? Right. So I think it is buying you something. The only thing you can buy with $101 million that you couldn't buy with $99 million is power.

Good question. So this is also the view, and I saw this expressed in some of the comments. You know, we're in the fifth inning of a nine-inning game. You can't issue the report card yet. I'm not sure that's right because these tariffs are only going to last as long as the Trump presidency. So the smart tariffs and smart trading deals are seen as somewhat persistent. And that creates the conditions for persistent investment. And so should play out over many, many years. But brief, temporary tariffs are going to have brief temporary effects. And so I think it's totally okay to be looking right now because these tariffs are brief and temporary. How could we rebuild the American industrial base? You gave me an out, and I appreciate the out, which is, why do we want to? Wow, that's a harsh question. Wow, that feels weird. But I mean it. Look, there's national security issues. We should definitely take every one of them seriously. But when people talk about the American industrial base, they're basically saying, what I want is more manufacturing jobs. That what I want is my son or daughter to wake up in the morning and wear steel-toed boots and carry a lunch pail to a factory, punch in, work in the factory, punch out, go home. And in the 1960s, manufacturing job was the pathway to the middle class and had a lot to recommend it. Today, that's less clear. I've actually looked at some survey research on this. Manufacturing jobs is basically what rich people think poor people want. But if you talk to a manufacturing worker and you ask them about their hopes and dreams and aspirations for their kids, it's not to be punching in and out of a noisy or dirty factory. In fact, it's to take the sorts of white-collar or possibly pink-collar jobs that are less hard on the body that the administration seems to deride so much. So a different way of saying all of this is: I just want to let people make smart choices for themselves. I don't know that the next generation of kids want to. Wear hard hats and steel-toed boots. They might want to sit at a computer. So, given that, I'm going to say, let's just, all jobs matter. Why put the thumb on the scale of this specific weird subset? Now, I want to give a defense, or I want to take my part of the blame for all of this. I think the reason is people have an affection for stuff. You know what comes out at the end of a manufacturing plant? Stuff, a thing. They made a thing, you know, like a car or a truck or a gold pig, even, right? And it feels like an economy of stuff. You can't just have an economy of services. And I think that's where my tribe of economists have failed, which is actually, we don't need stuff to be real. Let me give an analogy. 200 years ago, 90% of Americans worked on farms. What happened was farms got so productive through mechanization and hybrid seed corn and all of the scientific changes that we can now grow enough food for all Americans, but it only requires one in 100 Americans to be on a farm. So we still get fed, but we don't have to be on a farm. Now, of course, 100 years ago, people are like, oh, no, it's the death of America because we're no longer growing food. You can't have an economy where we're not all just growing food. Turns out you can. We went on and we made stuff instead. And then what's happened to manufacturing is basically the same process, but it's a century, a century and a half later, which is factories no longer have people in them. They have robots and an occasional person to plug them in and unplug them and check their working. As a result, we are getting a lot of stuff. My house is full of stuff. Your house is full of stuff. Right? But it's stuff that we no longer need people to be making. And what that does is it frees up other people for the things that a rich nation wants. Now that I'm wealthy, I have enough food to eat. I don't want to employ more people on farms to make more food than I want. And I have enough cars. My family now has two. That feels like a lot. And we're not going to be better off if we force people to make more cars. What do I want? I want a good education system. I want medical care. I want a therapist. I want to go to the museum and see beautiful art. I want to go to a concert. I want to go to a coffee shop and have my barista make me the perfect beverage. Those are all services. And if what we do is keep people in manufacturing, we're putting a thumb on the scale of history rather than what people want. And so I don't see the appeal. I've been in a factory. It's not my dream. I am quite against manufacturing fetishism. And I think of it as a fetish. And again, I think the reason for that fetish is my tribe, economists, haven't explained very well that we are still manufacturing a lot of stuff. We just don't need a lot of people to do it.

So one of the joys of my life is I live in a two-economist household. And so I was talking to the other economist in my household, Betsy Stevenson, yesterday. And this whole deep dive into the economics of burritos and affordability actually came from I wrote a New York Times column. And then Megan, you and I recorded a video. But I hadn't had time to talk to Betsy about all of this. And I was like, oh, I wrote this column. I'm really proud of it. It's about affordability. And she said, did you take account of job switches? And I'm like, no, what are you talking about, Betsy? I wrote a good column. I got very defensive. And then I listened. And she had a really good point. So one of the things that I said in the column and we said in the video is that wages tend to keep up with prices. That's true. Now, some people are going to say that's true on average. It's not true for everyone. I agree with you. I hear you. One of the things we did, though, was we looked at this, I think it's the Atlanta Fed. I hope it's the Atlanta Fed. Has a wage growth tracker where what they do is they track an individual person over time and they say, what was the wage gain over the past year of each of those people? And the median wage gain in the United States was 3.6%. Inflation was 3.4. So therefore, I get to say at least half of all Americans had wages rise faster than prices last year, despite the perception of an affordability crisis. Here's where talking to Betsy turned out to be really helpful. And I wish I'd done it a couple of days before. How could I possibly have known? I only have three meals a day with her. She pointed out, if you look at people who are within the same job over time, their median wage growth was much lower. I don't have a number in front of me. If you look at people who switch jobs, that's the source of most of the wage gains. So now let's come back. In the video, we talked about the mental model that regular people, not economists, have in their mind about how inflation works. And this is drawing on the research of Harvard's Stephanie Stancheva. And it's basically most people think of their wages as being determined by their boss. And when prices rise, their boss likes the fact that makes them more profitable. And bosses don't like giving raises. So prices go up and wages stay the same. That helps us understand why people are so upset about inflation. They say prices rise, they don't expect their wage to catch up, therefore they expect to fall behind. Okay. Now, remember, I told you the economic evidence and economic theory says the exact opposite. It says prices rise and wages rise. It's actually kind of possible both things are right. And this is where I think Betsy's observation is spot on. So a regular person thinks my wage is set by the boss. Actually, down here. An economist thinks your wage is set by market forces, but you don't go into work and see supply and demand every day. So prices go up. Therefore, the number of dollar bills you make for your boss, whatever you produce became more valuable. Therefore, you became more valuable. So your boss right now has two choices. They could raise your wage because what you made is more valuable. They've got more money and it's more profitable to employ you, or they could not. If they choose not to, and that's what regular people think happens, then I get to say, yes, but I understand you're embedded in the market. That you are, to take your current occupation, Megan, a video producer. And as a producer, if I were to not raise your wages, you could go and look for a producer job elsewhere because you become more valuable. That's the point at which market forces really matter. And so it turns out that actually people are right. Their boss often doesn't give them a raise. Market forces, though, means there are a bunch of other people willing to give them a raise. So therefore, they look around and they get a higher wage. So then the economists are right. The higher price did lead to a higher wage, but it took looking for a job in between. Now, two more things matter here. I know I'm going on, but I'm so excited by this question. I get a wage rise and I think I earned it. And then prices rise and I think those bastards stole my wage. Well, if the only way I got the wage rise was not just by continuing to do my work, but actually I had to change jobs. I had to search. I had to find the right employer. I interviewed them. They interviewed me. I brought my best to the interview. I'm even more likely now to believe that wage rise is not just compensation for inflation or market forces. It's about me. I actually had to do something to get it, right? And so the psychological pain of inflation, if it's mediated by, yes, your wages catch up, but the only way is by looking elsewhere, that psychological pain, the asymmetry between how you treat the wage rise and the price rise becomes even sharper. And then finally, there's the question you actually asked me. I do remember it. You said, well, if people need to search for another job, how does current labor market conditions matter? And this is Betsy's insight. She said it to me this morning. We're currently in what people are calling a low-hire, low-fire labor market, which is the unemployment rate's not rising, but it's because not many people are walking away from their jobs. And so therefore, not many people, not many job openings arise and not many people come in. Well, if the only way to get a wage rise is by leaving your current boss for another job, but there's less of that churn than there ever was, no wonder it feels so difficult to get a wage rise right now. All right. I did eventually get to your question.